South Korea is an economic powerhouse home to thriving companies such as Samsung and Hyundai. It’s a great place to expand to if you want to tap into a skilled workforce and grow your team. However, the country has some unique guidelines for setting up South Korea payroll that can make expansion difficult, but G-P is here to help.

Taxation rules in South Korea

Companies in South Korea must pay national corporate income tax, at the following rates: 

  • Taxable income up to KRW 200M is taxed at 10%
  • Taxable income of KRW 200M to KRW 20B is taxed at 20%
  • Taxable income of KRW 20B and KRW 300B is taxed at 22%
  • Taxable income over KRW 300B is taxed at 25%

Companies must also pay local corporate income tax at a rate of 1–2.5%. 

South Korea uses a progressive income tax rate for employees that includes additional rates for local income tax. Employees are all part of a mandatory social security system and National Health Insurance (NHI), and both employees and employers contribute to the NHI at a rate that depends on the employee’s salary.

Under the various social security-related laws in South Korea, companies — including foreign invested companies — with a certain number of employees, are required to participate in the various social security programs and to make contributions for the benefit of employees. Noncompliant companies may be subject to penalties. There are 4 mandatory social security programs in South Korea: the National Pension, the National Health Insurance (including the long-term Care Insurance for the Elderly), the Employment /Unemployment Insurance (EI), and the Industrial Accident Compensation Insurance (IACI).

South Korea payroll options for companies

Companies have 3 main South Korea payroll options when expanding:

  • Internal: If you already have an established subsidiary, you can run payroll internally, providing you have the time, resources, and HR team. This option is best suited for larger companies that plan to maintain a long-term presence in South Korea.
  • South Korea payroll processing company: A local South Korea payroll processing company can help you outsource your payroll, but you will still be held liable for compliance issues.
  • G-P: The easiest way to run payroll in South Korea and stay compliant is partnering with an Employer of Record like G-P. With us, you can rest assured that all employees will be paid on time, freeing you to focus on other important aspects of your business.

How to establish a payroll in South Korea

Before setting up a South Korea payroll, you’ll need to establish a subsidiary in the country or choose an alternative, such as an EOR. International employees will also need a visa, so companies should take this into account when deciding which business structure is best for expansion.

The steps to set up payroll depend on what kind of structure you choose. Generally, you will need to register at the National Tax Information System, the Internet Registry Office, and fulfill local tax payments.

Entitlement/termination terms

It’s best practice to draft a written employment contract when hiring employees in South Korea. In this contract, you should include entitlement and termination terms, such as notice periods and severance payments. Dismissal requires just cause and written notice stating the reason and effective date. You must give at least 30 days' advance notice or pay at least 30 days' wages in lieu.

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